Sept. 2001 Vol. 222 No. 9  Production

Perry A. Fischer,  Engineering Editor

Ending blackouts? An underground technology resurfaces

The public’s interest in the energy "crisis" fluctuates like a toolpusher’s blood pressure during a fishing job. Last December, when oil, gasoline and natural gas prices were high, the public was near panic. Now that prices have eased a bit, the public has relaxed. Crisis over – at least for this afternoon. Meanwhile, an old technology has been quietly expanding in an underground cavern, and it could help avert those annoying blackouts that have plagued parts of the U.S. for decades.

Dresser-Rand has taken advantage of the current political energy saga by reminding us of Compressed Air Energy Storage (CAES). It’s economical, environmentally friendly and has been working for 10 years in tiny McIntosh, Alabama, population 250. The CAES facility is the only one of its kind in the U.S.

CAES converts electric energy into potential energy by compressing air into underground caverns during periods of off-peak electricity demand, which is usually at night or on weekends. Later, during peak demand, the compressed air is used to drive turbines that generate electricity. The cost of compression is only one to two cents per kilowatt-hour.

"Essentially, CAES is a type of battery," explains David Hargreaves, business development manager for Dresser-Rand, which helped develop the technology.

For the past decade, CAES has successfully produced up to 110 MW of electricity, with only a 15-minute start-up, at considerably less cost than gas-powered turbines. CAES plants can be built in multiples of 110 MW and located anywhere there is a suitable underground cavern (e.g., salt, aquifers, and mined hard rock) and access to the power grid – and there are many such locations.

According to engineers cited in a Dresser-Rand article, CAES plants could be a quick fix with long-term potential. A conventional fossil fuel plant takes four to eight years to build, while a CAES plant can be built in less than three years.

LNG plus GTL. "By combining LNG and gas-to-liquid (GTL) facilities, developers could save up to 20% of the combined capital cost," estimated an engineer from a firm that builds both types of facilities. This was one of the themes at a recent Alaska symposium on the topic of monetizing stranded gas.

Arend Hoek of Shell Global Solutions Int’l. told the audience, "For new prospects, you can consider having both of these technologies on the same site. There might be positive, interactive synergies between the two." An example was reported in this column in January 2001, where Shell, the Egyptian General Petroleum Corp. and the Egyptian Oil Ministry agreed to a development protocol for a one-train LNG plant, together with a 75,000-bpd GTL facility using Shell’s Middle Distillate Synthesis process. Shell’s Bintulu, Malaysia, GTL plant is also located adjacent to an LNG plant.

Five areas were outlined where combined LNG and GTL plants could offer complementary processes: upstream pretreatment; gas compression; electricity supply from the GTL plant to the LNG plant; the loading jetty; and supporting infrastructure outside the battery limit. Operational costs and marketing would also benefit.

Shell announced seven possible GTL-plant sites, including Iran, Malaysia, Trinidad, Egypt, Argentina, Western Australia and northern Australia. A combined LNG and GTL complex, producing 7.0 million metric tons of LNG and 27 million bbl of GTL annually for 25 years, would consume 16 Tcf of gas.

These and other topics will be discussed at the Monetizing Stranded Gas Reserves Conference, October 10 – 12, 2001, in Denver, Colorado, which is hosted by the energy research firm, Zeus Development Corp. A workshop will be held on October 10 to consider the benefits and challenges of co-locating LNG and GTL facilities. The instructors are Felix de la Vega of Kellogg, Brown and Root and Dr. Richard Mallinson, director, Institute of Gas Utilization.

Too much, too soon? But the hype in the press – even in World Oil – may be outpacing reality. Current, worldwide GTL production is roughly 200,000 bpd (including coal / syngas-derived GTL) and steady. The reason for all the excitement over GTL is that – despite being an idea that’s more than 60 years old – GTL has the potential to be planet-changing. Worldwide natural gas supplies are ample. Last year, Petroconsultants and Zeus reported their estimate of over 900 Tcf of stranded gas worldwide. Consider the ramifications if much of the world’s transportation fuels were natural-gas based (e.g., OPEC, military strategy / investment in the Middle East, oil export revenues). In the near term, legislation that requires reducing sulfur in fuels will play a key role in advancing GTL’s future.

Only in the press are projects proceeding quickly. Rentech, one of several new firms in the GTL field, had what it thought was a good business plan: Buy a methanol plant cheaply and save on capital expenditures, then convert it to a GTL plant that’s already close to markets – for both gas supply and product demand. Plans and permits were well underway at the Sand Creek, Colorado, plant when last fall’s dramatic spike in gas prices hit. The company abandoned the gas-supply idea rather than risk future gas-price volatility, and is now focusing on using industrial off-gas as feedstock.

Truly stranded gas is, however, another matter, for if left in the ground, it has zero value; and if it’s associated and re-injected for regulatory compliance, it has a negative value.

According to Rentech President Dennis Yakobson, there were about 42 proposed GTL plants worldwide. Although binding commitments continue to be sought, few of those plants have a groundbreaking date. Nevertheless, GTL projects will progress, it’s just the pace that’s in doubt.

There are several GTL projects proposed in Australia. As reported in The Australian, the Australian government’s GTL Task Force wrote "It seems likely that a GTL plant will not go ahead unless there is some form of government intervention that lowers project costs, at least in the short term."

Comments? Write: fischerp@gulfpub.com